I was glad to hear this morning that the Conservatives intend to inject some hope and optimism into the government’s narrative. You can overdo the dire warnings about cuts to come, especially when the plan is to increase public spending each year for the next five years. If they do announce difficult cuts in particular departments and programmes it will be because the public sector is unable to manage with a 6% cash increase this year and another 2.5% next year.
I have long been pointing out that over the five years of this government’s plans total public current spending will rise by an annual £92.1 billion from the last Labour year. I should also add today that over the same time period tax will go up by £176.8 billion a year. In the last Labour year they collected £479.7 billion in tax. This government plans to collect £656.5 billion in tax in 2014-15. ( Budget Red book forecast p 100). The annual tax increase by year five of the planned increases will be £3000 for every person in the country or £12,000 for a family of four.
I look forward to Conservative Ministers dealing robustly with those who like Ed Mililband think there is scope for yet more tax increases. Mr Osborne has already proposed raising more than 20% of the planned deficit reduction from tax increases, and has made tax increases do more of the work in the first two years.
This morning we learn that maybe 1 in 4 hedge fund managers has already changed their personal domicile to avoid 50% income tax, whilst some whole funds have also gone, taking their substantial tax payments with them. Many politicians do not like hedge funds. They may discover there is one thing worse than having them in your tax jurisdiction, and that is to lose them.
Looking at the figures it is very difficult to claim that the Uk is undertaxed, or that tax is not carrying more than its fair share of reducing the deficit. The Chancellor wisely backed off from putting CGT up to 40% or 50%, realising that such high rates would result in less revenue, not more. He should also do some more analysis of the impact on revenue of our current income and capital tax rates. I think he would find on any sensible analysis that he would raise more tax if the rates were set at more competitive levels internationally. I always say we need to tax the rich more, and the way to do it is to lower the rates.
In 1989-90, Maragret Thatcher’s last year as PM, total taxes raised brought in £190 billion. It’s quite a thought that the Coalition government plans to raise taxes by almost as much as total taxes 20 years ago.